The present invention is related to a method for analyzing the profitability of freight loads carried during a round trip by for-hire motor common carriers by apportioning the total cost of the round trip to each of the loads.
The inventors of the present invention have been producing cost models for the trucking industry for many years, and have found that, from their experience, profitability analysis in the irregular route, or truckload, segment of the industry misses what they consider a critical component of cost allocation. This critical component is the calculation of the impact of xe2x80x9cheadhaulxe2x80x9d vs. xe2x80x9cbackhaulxe2x80x9d freight, which will be further explained herein. Currently, the impact of xe2x80x9cheadhaulxe2x80x9d vs. xe2x80x9cbackhaulxe2x80x9d freight is evaluated using general estimates or rules of thumb, rather than with a mechanism for actual cost allocation.
An irregular route driver generally goes on the road from a home base, or domicile, usually at or near the driver""s residence, often for many days, moving two or more loads from one location to another before returning home again. In addition to the loaded miles, i.e. distances traveled while carrying a load, the trip usually involves one or more segments of empty miles while the driver moves the vehicle unloaded from a drop-off destination to a subsequent pick-up destination. In the context of the present disclosure, this sequence of moving two or more loads from the time the driver leaves the home base until the driver returns to the home base, or some other termination point, is called a round trip. Motor carriers effectively xe2x80x9cpurchasexe2x80x9d these round trips from their employee-drivers, which is disguised by the fact that they usually pay drivers on a per-mile basis.
Each load carried during the round trip will generate income revenue from the price charged for hauling the load. In addition, the motor carrier will incur costs directly associated with the operation of the vehicle over the round trip. These costs, known as linehaul costs, include driver wages and vehicle operation costs, such as fuel, depreciation, insurance, heat/refrigeration, etc. These costs are typically expressed and evaluated in terms of a particular cost per mile of vehicle operation. Most of these costs will be incurred whether the vehicle is empty or loaded. Other costs that will be incurred are not directly related to the operation of the vehicle and are known as non-linehaul costs. Such costs may include load handling charges, tank cleaning costs, the cost of lumpers, and general administrative costs associated with securing, scheduling, and processing each freight load.
For accounting purposes, motor carriers tend to treat each load of a round trip as a separate service transaction in which the revenues generated for that particular load are compared to the costs associated with that particular load to derive a profit (or loss) figure associated with that particular load. Typically, empty miles driven during a round trip are accounted for by adding all the costs associated with operating the vehicle over the empty miles to the costs of the load immediately proceeding or immediately following the empty miles driven.
In a typical round trip scenario, profits generated by the primary load heading out from the home location, known as the headhaul, would be higher than the profits generated by the load or loads carried between intermediate locations on the way to the round trip termination point, known as the backhaul. In fact, backhaul loads are typically seen as a means for defraying the costs of getting the vehicle back after the headhaul load. In other scenarios, this sequence could be reversed, with the driver taking a backhaul load first to get to an area with headhaul loads coming back. If the backhaul loads return an unacceptably low profit, or even a loss, prices for the headhaul loads may be increased correspondingly to compensate for the low profits or losses incurred in the backhaul, if the market in that traffic lane permits. Since backhaul loads are typically seen as a means for defraying the costs of getting the vehicle back to the home location, or, alternatively, to a distant headhaul pickup location, carriers typically discount the lack of profit or the losses to the fact that these are backhaul loads, with little or no consideration given to whether the profits generated by the headhaul loads would be sufficient to compensate the low profits and/or losses associated with the backhaul loads.
The current methods for analyzing costs and profits for round trips consisting of two or more loads carried by a motor vehicle are inadequate because the costs and revenues associated with each load are treated independently. Therefore, the motor carrier is not accounting for the fact that it buys round trips, not individual loads, from its drivers; nor does it account for the profit ramifications of that fact on any one load.
In accordance with the present invention, a method is provided for analyzing the profitability of each of two or more freight loads moved within a round trip of a freight vehicle during which the two or more freight loads are moved, one at a time, from one location along the round trip route to another location along the round trip route by the freight vehicle. In the preferred embodiment, a revenue contribution of each of the two or more freight loads of the round trip is identified, and the revenue contributions of the two or more freight loads are summed to obtain a total round trip revenue. A cost associated with each of the two or more freight loads of the round trip is identified, and the costs associated with the two or more freight loads are summed to obtain a total round trip cost. The load cost identification includes an allocation of identified empty mile costs. The total round trip cost is then apportioned among each of the two or more freight loads based on the revenue contribution of the freight load, the total round trip revenue, and the total round trip cost.
According to another aspect of the invention, a computer-readable medium is encoded with a plurality of processor-executable instruction sequences for analyzing the profitability of each of two or more freight loads moved within a round trip of a freight vehicle during which the two or more freight loads are moved, one at a time, from one location along the round trip route to another location along the round trip route by the freight vehicle. The processor-executable instructions sequences comprise identifying a revenue contribution of each of the two or more freight loads of the round trip and summing the revenue contributions of the two or more freight loads to obtain a total round trip revenue, identifying a cost associated with each of the two or more freight loads of the round trip and summing the costs associated with the two or more freight loads to obtain a total round trip cost, and apportioning the total round trip cost among each of the two or more freight loads based on the revenue contribution of the freight load, the total round trip revenue, and the total round trip cost.